On February 22, 1962, Aurelio G. Briones filed an action in the Municipal Court of Manila against Primitivo, Nicasio, Pedro, Hilario and Artemio, all surnamed Cammayo, to recover from them, jointly and severally, the amount of P1,500.00 plus damages, attorney's fees and costs of suit. The defendants answered the complaint with specific denials and the following special defenses and compulsory counterclaim:

"x x x; By way of

SPECIAL DEFENSES

Defendants allege:

4. Defendants executed the real estate mortgage, Annex 'A' of the complaint, as security for the loan of P1,200.00 given to defendant Primitivo P. Cammayo upon the usurious agreement that defendant pays to the plaintiff and that the plaintiff reserve and secure, as in fact plaintiff reserved and secured to himself, out of the alleged loan of P1,500.00 as interest the sum of P300.00 for one year; 5. That although the mortgage contract, Annex 'A' was executed for securing the payment of P1,500.00 for a period of one year, without interest, the truth and the real fact is that plaintiff delivered to the defendant Primitivo P. Cammayo only the sum of P1,200.00 and withheld the sum of P300.00 which was intended as advance interest for one year; 6. That on account of said loan of P1,200.00, defendant Primitivo P. Cammayo paid to the plaintiff during the period from October 1955 to July 1956 the total sum of P330.00 which plaintiff, illegally and unlawfully refuse to acknowledge as part payment of the account but as in interest of the said loan for an extension of another term of one year; 7. That said contract of loan entered into between plaintiff and defendant Primitivo P. Cammayo is a usurious contract and is contrary to law, morals, good customs, public order or public policy and is, therefore, inexistent and void from the beginning (Art 1407 Civil Code); And as

COMPULSORY COUNTERCLAIM

Defendants replead all their allegations in the preceding paragraphs; 8. That plaintiff, by taking and receiving interest in excess of that allowed by law, with full intention to violate the law, at the expense of the defendants, committed a flagrant violation of Act 2655, otherwise known as the Usury Law, causing the defendants damages and attorney's fees, the amount of which will be proven at the trial; 9. That this is the second time this same case is filed before this court, the first having been previously filed and docketed in this court as Civil Case No. 75845 (Branch VII) and the same was dismissed by the Court of First Instance of Manila on July 13, 1961 in Civil Case No. 43121 (Branch XVII) and for repeatedly bringing this case to the court, harassing and persecuting defendants in that manner, defendants have suffered mental anguish and anxiety for which they should be compensated for moral damages."

On September 7, 1962, Briones filed an unverified reply in which he merely denied the allegations of the counterclaim. Thereupon the defendants moved for the rendition of a summary judgment on the ground that, upon the record, there was no genuine issue of fact between the parties. The Municipal Court granted the motion and rendered judgment sentencing the defendants to pay the plaintiff the sum of P1,500.00 with interests thereon at the legal rate from February 22, 1962, plus the sum of P150.00 as attorney's fees. From this judgment, the defendants appealed to the Court of First Instance of Manila where, according to the appealed decision, "defendant has asked for summary judgment and plaintiff has agreed to the same." (Record on Appeal p. 21). Having found the motion for summary judgment to be in order, the court then proceeded to render judgment as follows:

"Judgment is, therefore, rendered, ordering Defendant to pay Plaintiff the sum of P1,180.00 with interest thereon at the legal rate from October 16, 1962 until fully paid. This judgment represents Defendant's debt of P1,500.00 less usurious interest of P120.00 and the additional sum of P200.00 as attorney's fees or a total deduction of P320.00. Plaintiff shall pay the costs."

In the present appeal defendants claim that the trial court erred in sentencing them to pay the principal of the loan notwithstanding its finding that the same was tainted with usury, and erred likewise in not dismissing the case.

It is not now disputed that the contract of loan in question was tainted with usury. The only questions to be resolved, therefore, are firstly, whether the creditor is entitled to collect from the debtor the amount representing the principal obligation; secondly, in the affirmative, if he is entitled to collect interests thereon, and if so, at what rate.

The Usury Law penalizes any person or corporation who, for any loan or renewal thereof or forbearance, shall collect or receive a higher rate or greater sum or value than is allowed by law, and provides further that, in such case, the debtor may recover the whole interest, commission, premiums, penalties and surcharges paid or delivered, with costs and attorney's fees, in an appropriate action against his creditor, within two (2) years after such payment or delivery (Section 6, Act 2655, as amended by Acts 3291 and 3998).

Construing the above provision, We held in Go Chioco vs. Martinez, 45 Phil. 256 that even if the contract of loan is declared usurious the creditor is entitled to collect the money actually loaned and the legal interest due thereon.

In Gui Jong & Co. vs. Rivera, et al., 45 Phil. 778, this Court likewise declared that, in any event, the debtor in a usurious contract of loan should pay the creditor the amount which he justly owes him, citing in support of this ruling its previous decisions in Go Chioco Supra, Aguilar vs. Rubiato, et al., 40 Phil. 570, and Delgado vs. Duque Valgona, 44 Phil, 739.

In all the above cited cases it was recognized and held that under Act 2655 a usurious contract is void; that the creditor had no right of action to recover the interest in excess of the lawful rate; but that this did not mean that the, debtor may keep the principal received by him as loan thus unjustly enriching himself to the damage of the creditor.

Then in Lopez and Javelona vs. El Hogar Filipino, 47 Phil. 249, We also held that the standing jurisprudence of this Court on the question under consideration was clearly to the effect that the Usury Law, by its letter and spirit, did not deprive the lender of his right to recover from the borrower the money actually loaned to and enjoyed by the latter. This Court went further to say that the Usury Law did not provide for the forfeiture of the capital in favor of the debtor in usurious contracts, and that while the forfeiture might appear to be convenient as a drastic measure to eradicate the evil of usury, the legal question involved should not be resolved on the basis of convenience.

Other cases upholding the same principle are Palileo vs. Casio, 97 Phil. 919 and Pascua vs. Perez, G.R. No. L-19554, January 31, 1964, 10 SCRA 199, 200-202. In the latter We expressly held that when a contract is found to be tainted with usury "the only right of the respondent (creditor) x x was merely to collect the amount of the loan, plus interest due thereon."

The view has been expressed, however, that the ruling thus consistently adhered to should now be abandoned because Article 1957 of the new Civil Code - a subsequent law - provides that contracts and stipulations, under any cloak or device whatever, intended to circumvent the laws against usury, shall be void, and that in such cases "the borrower may recover in accordance with the laws on usury." From this the conclusion is drawn that the whole contract is void and that, therefore, the creditor has no right to recover - not even his capital.

The meaning and scope of our ruling in the cases mentioned heretofore is clearly stated, and the view referred to in the preceding paragraph is adequately answered in Angel Jose, etc. vs. Chelda Enterprises, et al. (G.R. No. L-25704, April 24, 1968). On the question of whether a creditor in a usurious contract may or may not recover the principal of the loan, and, in the affirmative, whether or not he may also recover interest thereon at the legal rate, We said the following:

"x x x. The court found that there remained due from defendants an unpaid principal amount of P20,287.50; that plaintiff charged usurious interests, of which P1,048.15 had actually been deducted in advance by plaintiff from the loan; that said amount of P1,048.15 should therefore be deducted from the unpaid principal of P20,287.50 leaving a balance of P19,247.35 still payable to the plaintiff. Said court held that notwithstanding the usurious interests charged, plaintiff, is not barred from collecting the principal of the loan or its balance of P19,247.35. Accordingly, it stated in the dispositive portion of the decision, thus: "WHEREFORE, judgment is hereby rendered, ordering the defendant partnership to pay to the plaintiff the amount of P19,247.35, with legal interest thereon from May 29, 1964 until paid, plus an additional sum of P2,000.00 as damages for attorney's fee; and, in case the assets of defendant partnership be insufficient to satisfy this judgment in full, ordering the defendant David Syjueco to pay to the plaintiff one-half (1/2) of the unsatisfied portion of this judgment. "With costs against the defendants." Appealing directly to Us, defendants raise two questions of law: (1) In a loan with usurious interest, may the creditor recover the principal of the loan? (2) Should attorney's fees be awarded in plaintiff's favor?" "Great reliance is made by appellants on Art. 1411 of the New Civil Code which states: "ART. 1411. When the nullity proceeds from the illegality of the cause or object of the contract, and the act constitutes a criminal offense, both parties being in pari delicto, they shall have no action against each other, and both shall be prosecuted. Moreover, the provisions of the Penal Code relative to the disposal of effects or instruments of a crime shall be applicable to the things or the price of the contract." "This rule shall be applicable when only one of the parties is guilty; but the innocent one may claim what he has given, and shall not be bound to comply with his promise." Since, according to the appellants, a usurious loan is void due to illegality of cause or object, the rule of pari delicto expressed in Article 1411, supra, applies, so that neither party can bring action against each other. Said rule, however, appellants add, is modified as to the borrower, by express provision of the law (Art. 1413, New Civil Code), allowing the borrower to recover interest paid in excess of the interest allowed by the Usury Law. As to the lender, no exception is made to the rule; hence, he cannot recover on the contract. So - they continue - the New Civil Code provisions must be upheld as against the Usury Law, under which a loan with usurious interest is not totally void, because of Article 1961 of the New Civil Code, that: "Usurious contracts shall be governed by the Usury Law and other special laws, so far as they are not inconsistent with this Code." (Italics ours.) We do not agree with such reasoning. Article 1411 of the New Civil Code is not new; it is the same as Article 1305 of the Old Civil Code. Therefore, said provision is no warrant for departing from previous interpretation that, as provided in the Usury Law (Act No. 2655, as amended), a loan with usurious interest is not totally void only as to the interest. True, as stated in Article 1411 of the New Civil Code, the rule of pari delicto applies where a contract's nullity proceeds from illegality of the cause or object of said contract. However, appellants fail to consider that a contract of loan with usurious interest consists of principal and accessory stipulations; the principal one is to pay the debt; the accessory stipulation is to pay interest thereon. And said two stipulations are divisible in the sense that the former can still stand without the latter. Article 1273, Civil Code, attests to this: "The renunciation of the principal debt shall extinguish the accessory obligations; but the waiver of the latter shall leave the former in force." The question therefore to resolve is whether the illegal terms as to payment of interest likewise renders a nullity the legal terms as to payments of the principal debt. Article 1420 of the New Civil Code provides in this regard: "In case of a divisible contract, if the illegal terms can be separated from the legal ones, the latter may be enforced." In simple loan with stipulation of usurious interest, the prestation of the debtor to pay the principal debt, which is the cause of the contract (Article 1350, Civil Code), is not illegal. The illegality lies only as to the prestation to pay the stipulated interest; hence, being separable, the latter only should be deemed void, since it is the only one that is illegal. Neither is there a conflict between the New Civil Code and the Usury Law. Under the latter, in Sec. 6, any person who for a loan shall have paid a higher rate or greater sum or value than is allowed in said law, may recover the whole interest paid. The New Civil Code, in Article 1413 states: "Interest paid in excess of the interest allowed by the usury laws may be recovered by the debtor, with interest thereon from the date of payment." Article 1413, in speaking of "interest paid in excess of the interest allowed by the usury laws" means the whole usurious interest; that is, in a loan of P1,000, with interest of 20% per annum or P200 for one year, if the borrower pays said P200, the whole P200 is the usurious interest, not just that part thereof in excess of the interest allowed by law. It is in this case that the law does not allow division. The whole stipulation as to interest is void, since payment of said interest is illegal. The only change effected, therefore, by Article 1413, New Civil Code, is not to provide for the recovery of the interest paid in excess of that allowed by law, which the Usury Law already provided for, but to add that the same can be recovered "with interest thereon from the date of payment." The foregoing interpretation is reached with the philosophy of usury legislation in mind; to discourage stipulations on usurious interest, said stipulations are treated as wholly void, so that the loan becomes one without stipulation as to payment of interest. It should not, however, be interpreted to mean forfeiture even of the principal, for this would unjustly enrich the borrower at the expense of the lender. Furthermore, penal sanctions are available against a usurious lender, as a further deterrence to usury. The principal debt remaining without stipulation for payment of interest can thus be recovered by judicial action. And in case of such demand, and the debtor incurs in delay, the debt earns interest from the date of the demand (in this case from the filing of the complaint). Such interest is not due to stipulation, for there was none, the same being void. Rather, it is due to the general provision of law that in obligations to pay money, where the debtor incurs in delay, he has to pay interest by way of damages (Art. 2209, Civil Code). The court a quo therefore, did not err in ordering defendants to pay the principal debt with interest thereon at the legal rate, from the date of filing of the complaint."

In answer to the contention that the forfeiture of the principal of the usurious loan is necessary to punish the usurer, We say this: Under the Usury Law there is already provision for adequate punishment for the usurer, namely, criminal prosecution where if convicted, he may be sentenced to pay a fine of not less than P50 nor more than P500, or imprisonment of not less than 30 days nor more than one year, or both, in the discretion of the court. He may further be sentenced to return the entire sum received as interest, with subsidiary imprisonment in case of nonpayment thereof. It is, of course, to be assumed that this last penalty may be imposed only if the return of the entire sum received as interest had mot yet been the subject of judgment in a civil action involving the usurious contract of loan.

In arriving at the above conclusion We also considered our decision in Mulet vs. The People of the Philippines (73 Phil. p. 60), but found that the same does not apply to the present case. The facts therein involved were as follows:

"On July 25, 1929, Alejandra Rubillos and Espectacion Rubillos secured from petitioner Miguel Mulet a loan of P550, payable within 5 years at 30 per cent interest per annum. In the deed of mortgage executed by the Rubillos as a security, the sum of P1,375 was made to appear as the capital of the loan. This amount obviously represented the actual loan of P550 and the total interest of P825 computed at 30 per cent per annum for 5 years. Within four years following the execution of the mortgage, the debtors made partial payments aggregating P278.27, on account of interest. Thereafter, the debtors paid the whole capital of P550, due to petitioners promise to condone the unpaid interest upon payment of such capital. But to their surprise, petitioner informed them that they were still indebted in the sum of P546.73 which represented the balance of the usurious interest. And in consideration of this amount, petitioner pressed upon the debtors to execute in October, 1933, in his favor, a deed of sale with pacto de retro of a parcel of land, in substitution of the original mortgage which was cancelled. From the date of the execution of the new deed up to 1936, petitioner received, as his share of the products of the land, the total sum of P480. Prosecuted on November 18, 1936, for the violation of the Usury Law, petitioner was convicted by the trial court, and on appeal, the judgment was affirmed by the Court of Appeals. The instant petition for certiorari is directed at that portion of the decision of the appellate court ordering petitioner to return to the offended parties the sum of P373.27, representing interests received by him in excess of that allowed by law."

It was Mulet's claim that, as the amount of P373.27 had been paid more than two years prior to the filing of the complaint for usury against him, its return could no longer be ordered in accordance with the prescriptive period provided therefor in Section 6 of the Usury Law. Said amount was made up of the usurious interest amounting to P278.27 paid to Mulet, in cash, and the sum of P480.00 paid to him in kind, from the total of which two amounts 14% interest allowed by law amounting to P385,00 - was deducted. Our decision was that Mulet should return the amount of P480.00 which represented the value of the produce of the land sold to him under pacto de retro which, with the unpaid balance of the usurious interest, was the consideration of the transaction meaning the pacto de retro sale. This Court then said:

"x x x. This last amount is not usurious interest on the capital of the loan but the value of the produce of the land sold to petitioner under pacto de retro, with the unpaid balance of the usurious interest (P546.73) as the consideration of the transaction. This consideration, because contrary to law, is illicit, and the contract which results therefrom, null and void. (Art. 1275, Civil Code). And, under the provisions of article 1305, in connection with article 1303, of the Civil Code, when the nullity of a contract arises from the illegality of the consideration which in itself constitutes a felony, the guilty party shall be subject to criminal proceeding while the innocent party may recover whatever he has given, including the fruits thereof." (underlines supplied).

It is clear, therefore, that in the Mulet case, the principal of the obligation had been fully paid by the debtor to the creditor; that the latter was not sentenced to pay it back to the former, and that what this Court declared recoverable by the debtor were only the usurious interest paid as well as the fruits of the property sold under pacto de retro.

IN VIEW OF THE FOREGOING, the decision appealed from is modified in the sense that appellee may recover from appellant the principal of the loan (P1,180.00) only, with interest thereon at the legal rate of 6% per annum from the date of the filing of the complaints. With costs.

Concepcion, C.J., concurs in the dissent of J. Castro.
Reyes, J.B.L., J., concurs with J. Barredo.
Makalintal, Zaldivar, Fernando, Teehankee, Villamor and Makasiar, JJ., concur.